Real Leadership
Something strange is happening to leadership at work. The old truths don’t seem to work anymore. Today’s leaders are not really sure which way to go. It used to be seen that every ‘leader’ needed ‘followers’, a hierarchy where people saw their future in the organisation and compliance was the order of the day. When insecurity crept in, […]
The connection between executive compensation schemes and performance was brought into sharp focus again in November 2015 after Deutsche Bank’s co-Chief Executive John Cryan stated that bonuses do not encourage banking executives to work harder. He specified that bankers shouldn’t be rewarded as entrepreneurs, highlighting the underlying belief that bonuses may not drive the behaviours they are intended to […]
According to the popular French economist Thomas Piketty, one of the main factors contributing to the growing inequality in the western world is inflated rates of executive pay.
Whilst executive pay is frequently the subject of furious political and ethical debate, it too remains a difficult topic for the organisations employing top managers. Despite the fact that it would certainly […]
Writing effective managerial contracts is far from easy. Compensation committees must allocate incentives where they are most needed, while simultaneously being careful not to induce behaviours that would be detrimental to shareholders or imposing an inordinate amount of risk on managers. In a recent paper, I specifically focus on this second problem, that of reducing the risk borne by […]
The first picture shows the distribution of actual earnings in our study on target setting (see the study in brief box below) and replicates a well-established finding that reported earnings exhibit a ‘discontinuity at zero’ (meaning that there are disproportionally fewer firms with small losses compared to small profits), which one might surmise perhaps suggests that firms ‘manage’ earnings […]
Some time ago I was asked to comment on a study that found that the use of accounting return measures and non-financial measures in bonus plans was associated with managers’ long-term focus. This suggests that proper performance measurement systems can affect managers’ horizon and alleviate myopia.
Myopia is indeed a pervasive issue in business, as the Kay Review suggests (amongst countless others). The blame is often squarely […]
Here is one diehard maxim of business: don’t overshoot your performance target this year, because before you know it the one for next year will be tougher yet. This is target ratcheting at work: when you do better than the established goal, your next objective will be even higher; but the converse is not true. If you do worse, the company will […]
There is a large and growing body of research on peer effects in social sciences. For instance, the economics literature on education has dealt extensively with peer effects in the classroom. One of the hypotheses in this literature is that students who are exposed to unusually low achieving cohorts tend to score lower themselves. While it is hard for […]
The recent box office success of Jurassic World, the latest Jurassic Park sequel, reminded me of my study about the use of real options in the motion picture industry*, which examined the application of this accounting tool to movie sequels.
A real option is the right, but not the obligation, to undertake a business decision. More importantly, a real-options approach to […]
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